Argentinian woes cause yet another QBE downgrade

Argentina’s troubled economy, regulation changes that encourage insurance claims and increasing litigation are major perpetrators of
QBE Insurance Group
’s decision to top up its reserves in the Latin American nation.

Shareholders of Australia’s biggest global insurer were forced to swallow another earnings downgrade, the fourth profit guidance miss by chief executive
John Neal
, largely due to problems in its Latin America division.

Argentinians were increasingly tabling claims thanks to changes in regulation two years ago that broadened the scope for what they can sue for. The country’s inflation rate is also hitting the 40 per cent mark, forcing premiums to be repriced each month to reflect climbing costs.

The Argentinian peso, which has decreased 30 per cent in value against the US dollar, is also hitting the company’s bottom line. “In Argentina we have adopted new and more sophisticated actuarial models that utilise explicit and significantly upgraded claims inflation factors, as well as upgrading our frequency and severity assumptions," QBE said.

The downgrade comes a month after QBE announced its decision to merge two of its smallest divisions – Latin America and Asia – under one roof. The new emerging markets division will be headed by current QBE Asia boss,
David Fried
, who will take on the new role on August 15. The company’s Latin American head, Jose Sojo, will leave QBE at the end of 2014.